Associated British Foods revealed further setbacks to its
sugar division from poor weather in Spain and lowered expectations for
improvement in China, but the hiccups were offset an "excellent" performance in
retail clothing.

The groceries-to-grain trading giant said that revenues and
profits from sugar for the six months to March 1 would come in "substantially
lower" than those a year before.

While Associated British Foods had last month cautioned that
its sugar revenues had started the financial year with a slide of 28%, the
comments prompted some brokers to cut further their forecast for the group's
profits from the sweetener.

At Panmure Gordon, Graham Jones cut by £20m to £275m his
forecast for the division's earnings before interest, tax and amortisation
(ebita) for the full financial year, a 37% decline on the 2013 result

For 2015, ebita will fall further, to £220m, reflecting
existing setbacks and the prospect of a rise in contracted costs for UK sugar
beet, of which it processes the whole crop, Mr Jones said.

'Excellent performance'

ABF flagged better performance by its Primark clothes retail
division, which has put in "another excellent performance", and is expected to
show a 13% rise in sales for the half year.

New store openings, in Australia, Germany, the Netherlands,
Portugal and Spain as well as in the home UK market, added to like-for-like
sales growth of 4%.

The group stuck by a forecast of achieving full-year
earnings per share for the current financial year "similar" to that reported
for the year to September 2013.

Market reaction

However, ABF shares, while hitting a record high of 3012p in
early deals in London, fell back to 2909p in late morning trade, down 2.8% on
the day.

Panmure Gordon kept a "hold" rating on the stock, if
increasing its target price for the shares to 2760p from 2500p thanks to
Primark's performance.

But at Numis, Charles Pick, flagging "severe pressure" in
sugar, cut his rating to "sell" from "reduce", with a target price of 2240p.

Mr Pick said that a dent to the sugar division from lower
prices, until late, "will impact more in the second half" of the financial
year, while estimating, on the retail side, that the group was already trading
on a higher multiple of operating profits than H&M and Inditex, a "demanding"
valuation.

'Unsustainably low sugar
prices'

ABF noted in sugar that the world sugar price has "fallen to
what we believe to be an unsustainably low level", putting "further pressure on
industry revenues and margins".

Raw sugar futures for May delivery touched 17.48 cents a
pound on Monday, up 10.9% so far for February, with London white sugar futures
for May hit $473.50 a tonne, a gain of 10.1% for the month.

However, cash market prices remain constrained by ideas of
ample world supplies, with 2013-14 the fourth successive season when production
has exceeded supply.

The European market has gained extra pressure from the
prospect of the removal of production quotas, implying more choice for buyers,
and less pricing power for sellers.

In southern Africa, where ABF controls Illovo Sugar, the
group cautioned that "competition from low cost imports" has undermined prices
in Tanzania and South Africa.

'Challenging harvest
conditions'

But ABF also warned that a good start to the beet campaign
in Spain had been followed by "adverse weather", causing "challenging harvest
conditions".

"Sugar production volumes are expected to be lower than last
year," ABF said.

In China, the group, which last month forecast a "substantial
improvement" in profits this financial year, on Monday sounded a more cautious
note in saying that there had been a "net improvement in performance".

"Production in the north has been seriously reduced by
flooding in Heilongjiang and, with fewer factories in operation following last
year's rationalisation, volumes are expected to be much lower year-on-year,"
ABF said.

However, "the campaigns at Qianqi and Zhangbei were both
excellent with good factory throughput and higher sugar content in the beet".

* The group made no mention of the complaint made to UK
fair-trade officials by Napier Brown, a major customer the owner of the
Whitworths brand, that ABF has been "abusing its dominant position" in sugar
pricing.